"Wishful thinking" is how senior figures in the capital market describe the events that unfolded on the Tel Aviv Stock Exchange (TASE) over the past month. The election results have produced a sobering reality check and a sharp market decline.
The confusion among investors was clearly reflected on the screens of the TASE. Indices turned bright red, marking one of their worst trading days in months, or in some cases years, and wiping out all gains since the beginning of October. Meanwhile, the local volatility index surged 30%, alongside sharp declines in long-term government bonds.
This shift was particularly stark given the investors' earlier optimism. On Monday, before the polls even opened, the TASE jumped nearly 2% amid a prevailing sentiment that the "opposition bloc" was poised for victory.
"People acted out of a hope for change," explains a market investment manager, "despite the fact that polls clearly indicated the most likely scenario was an inconclusive result. The market essentially turned a blind eye."
The optimism persisted on Tuesday, election day itself, where initial indications of voter turnout reaching historic levels were enough to trigger a dramatic and rapid 2% strengthening of the shekel against the dollar. Investors surmised that a high turnout would favor the "opposition bloc," and they rushed to bet on the horse that appeared set to win.
Shekel appreciation reverses
As the election results became clearer, the shekel’s surge reversed into a rapid and painful plunge against the dollar. "What happened with the dollar on Tuesday is pretty crazy," says one market source, while another adds, "The data show that investors opted for change - a sentiment reflected in the shekel-dollar exchange rate - but this isn't really playing out based on the actual results. In reality, the market was driven by huge speculation."
As exit polls and actual results began to roll in, the realization dawned that the worst-case scenario was unfolding before investors' eyes: a deadlock between the political blocs, a tangible risk of political paralysis - a situation Israel experienced earlier this decade - and the potential for yet another series of repeated elections.
Such a scenario raises concerns among investors regarding the inability to pass a state budget, a standstill in infrastructure development plans (expected to follow the war), and a continued freeze in the housing market. Furthermore, there is the risk that foreign investors, who had remained in the market "hoping that a different government might manage to soften international sanctions, which even the prime minister acknowledged are just around the corner," could now exit, according to Eyal Shina, chief investment officer at Pasternak Shoham.
Real Estate Index takes a painful hit
All these factors culminated in sharp declines on the TASE, with the sectors hit hardest being the very ones that had driven the rally and optimism leading up to the elections. Real estate stocks, which had enjoyed solid gains over the past month, suddenly wiped out all their month-to-date returns, slipping into the red. A similar trend was seen in the TA-90 index, which has major exposure to the domestic market and a high concentration of construction and development firms.
The Bank of Israel’s latest interest rate decision made it clear that there is virtually no room to maneuver for rate cuts in the coming year and also stressed that its forecasts did not account for the elections at all.
Now, with political uncertainty weakening the shekel and threatening to reignite inflationary pressures, the prospect of monetary easing has become even more remote. For highly leveraged real estate companies, interest rates remaining at current levels for an extended period means heavy financing costs, expensive mortgages that deter buyers, and a deepening stagnation in the sale of new apartments.
Indices for other key sectors on the TASE also saw sharp declines. This is the case for insurance stocks, which while not posting notable gains since the beginning of the month, had benefited from a positive trend in the preceding period. Conversely, bank stocks, infrastructure indices, and shares in income-producing and commercial real estate have experienced sharp declines.
All of these are considered to have high exposure to the domestic market and are significantly influenced by it. "These are the most sensitive sectors. Investor sentiment here is absolutely critical. Just as investors don't wait for housing prices to actually rise before selling off real estate stocks and vice versa," Shina says.
The same dynamic applies to insurance stocks, where the fear of international sanctions, especially given Netanyahu’s remarks that such a scenario is a realistic possibility, is fueling panic among investors.
Stocks that bucked the trend
Conversely, a small number of stocks bucked the trend, standing out with gains, mainly on the Tel Aviv 35 index. They share a common denominator: they are dual-listed stocks, traded both in Israel and abroad, with global operations, making them less susceptible to the situation in Israel. Investors viewed these stocks as a sort of "safe haven." Furthermore, many of them resumed trading following a market holiday with positive arbitrage gaps, buoyed by two days of gains in the US, led by the semiconductor and technology sectors.
This group included cybersecurity giant Palo Alto Networks; semiconductor firms Tower and Camtek as well as the pharmaceutical company Teva and the defense contractor Elbit Systems. The renewed surge of the US dollar against the shekel is actually a positive factor for these companies, both directly, as the stocks become more valuable in dollar terms, and indirectly, because their global dollar-denominated revenues will translate into a higher value in shekels when converted.
"Before the elections, the indices rose regardless of actual economic data. Investors now realize they were mistaken, leading to an outflow of capital-which explains a significant portion of the declines," says Shina. "Optimism has waned, but current pricing does not yet reflect a catastrophe. It is worth remembering that the indices had previously risen and what we are seeing now is the 'hot air' - the excess optimism - being let out. Stock market valuations do not yet represent a buying opportunity."
"The problem right now is that even the most optimistic observers struggle to envision a realistic scenario in which a stable, functional government could be formed," says Eldad Tamir, CEO and owner of investment firm Tamir Fishman. The phrase "stable government" came up repeatedly in our conversations today.
"The market is neither right-wing nor left-wing; it simply craves stability," notes another manager. "Yet, all it has been offered is the prospect of another election within a year, or perhaps a year and a half."
"Trump could bring about change"
While investment managers are currently pessimistic, they point to one scenario that could completely transform the situation and bring gains back to the TASE. "If we see a turnaround - the formation of a unity government - then we will see the exact opposite: a rally," asserts Shina.
How could such a government be formed? Investment managers are looking toward US President Donald Trump, suggesting that "if Trump forces them to sit down together, it would be excellent for the stock market, as we would suddenly have a very broad-based unity government. It sounds far-fetched, but in reality, this is what the public is signaling to the politicians."
One thing is certain: the prospect of political deadlock would be very damaging to the markets. "The current state of uncertainty is very bad for the market. If it becomes clear in the coming week that we are headed toward repeat elections, implying another six months of uncertainty, it will be very bad for the markets," says another investment manager.
Shina warns that if the political impasse remains unresolved and it appears there is no chance for unity - the market decline won't end with just the sharp drops we saw on Wednesday. The gloom and despondency will likely persist in the market for some time, as it will be difficult to convince investors that the economy is an attractive prospect. "Uncertainty, combined with pressures and sanctions in the international arena, particularly regarding Iran, makes the market less attractive to investors, and we are not seeing any capital inflows. In the coming days, at least, politics will be highly relevant to the local market. The market is reacting to news, not to economic data."
Published by Globes, Israel business news - en.globes.co.il - on October 28, 2026.
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